The Research On The Impact Of Political Risk On Location Choice Of Outward Foreign Direct Investment Of China

Since China put forward the strategy of “Going Abroad”,Chinese enterprises appeared on the international stage constantly by the way of Outward Foreign Direct Investment(OFDI)and showing a rapid growth trend.However,many enterprises suffered a variety of external risks,especially political risk of the host countries,resulting in heavy losses.So the study of political risk is of great significance.Investment location choice is not only the first step,but also the most critical decision.The correct of investment location can reduce the risk of OFDI effectively.Thus what kind of influence of political risk in the host country on the location choice of OFDI of China? The current domestic research on this issue to be further improved and supplemented.The existing domestic and foreign literature is the support of follow-up research.This paper found that political risk in not only caused by political factors,but also includes social,economic factors.Political risk is divided into three dimensions: politics,economy and society.The study of political risk is mostly based on qualitative macroeconomic analysis,and the little empirical study is inconsistent.And most of the foreign literature is based on the research of transnational corporations in developed countries,which lacks realistic guiding significance for Chinese enterprises.This paper analyzed the characteristics of OFDI of China and its location distribution.The OFDI of China is highly concentrated in the developing countries.This paper chooses the six elements of political risk,namely,Military Politics(MP),Democratic Accountability(DA),Law and Order(LO),Corruption(COR),Government Stability(GS)and Bureaucracy Quality(BQ),as a substitute for political risk.Based on the existing theoretical basis,this paper puts forward the relevant research hypothesis,and corrects the measurement model of this paper according to the existing gravitational model.This paper tested this hypothesizes using panel data in 2007-2013 of 51 countries.In addition,this paper tested regulatory effect of Relation with China(D)between political and the location choice of OFDI of China.Empirical results show that LO,COR,GS,BQ passed the significance test.LO in the host country is negatively correlated with the OFDI of China,including that the OFDI of China is preferred to countries with low legal degree.This is because our country itself is in the development of the legal system imperfect stage,enterprises in this long-term business environment,more biased in the legal system of smaller countries(regions)to achieve transnational business.COR is negatively correlated with the OFDI of China,that is the OFDI of China is preferred to countries with lower levels of corruption.Corruption in the host country has led to a distorting operating environment,an increase in investor transaction costs,a relative reduction in investor expectations,and a reduced interest in investors.GS in the host country is negatively correlated with the OFDI of China,indicating that the OFDI of China preference for the poor stability of the government.Host countries have introduced some policies to attract foreign investment,and our enterprises are also based on those preferential policies to invest in its choice.BQ is positively related to the OFDI of China,indicating that the OFDI of China preference in the political management of high quality countries.Good quality of government management can,to a certain extent,ensure that our enterprises have a stable and orderly business environment in the host country and reduce operational resistance.The results of the analysis of the regulatory effect show that Relation with China is not only an importance factor in the location choice of the OFDI of China,but also have a regulatory effect on the relationship between political risk and the OFDI of China.There is a strong alternative to the relationship between D and MP and LO,and a strong complementary relationship between D and DA.Finally,this paper put forward some countermeasures on the political risk management of Chinese enterprises from the aspects of government policy and enterprise management.The government should expand the scope of Bilateral Investment Treaty and establish a good relationship with China.Then the impeccable legal system should be improved and the overseas investment insurance model should to be made.Chinese enterprises should raise the awareness of risk,cultivate the risk management culture.Before the investment Chinese enterprises have to assess the risk and establish the risk warning system.In addition,Chinese enterprises can take the location choice strategy to diversify political risk.